The past few years have been marked by significant instability. While 2025 offers the promise of greater stability and certainty, it does not guarantee it. Here, we examine some of the key changes and challenges ahead.
Legislation in Limbo
On the final sitting day of parliament in 2024, the Senate passed 32 Bills, including seven directly affecting businesses and the financial interests of some Australians. However, two critical announcements remain uncertain:
$3 Million Tax on Superannuation Earnings
The proposed Division 296 tax, which would impose a 30% tax rate on earnings in superannuation funds exceeding $3 million, is set to begin on July 1, 2025. However, the Bill introducing this new tax is currently stalled in the Senate. It’s unlikely that the tax will pass before the election, at which point the Bill will expire. The question then becomes whether the incoming government will amend the proposal or allow it to fade away as an unsuccessful idea.
$20,000 Instant Asset Write-Off for Small Business
The extension of the $20,000 instant asset write-off threshold for small businesses has been announced by the government in the 2024-25 Federal Budget. The concession allows businesses with a total turnover of less than $10 million to deduct the full cost of eligible depreciating assets costing less than $20,000. The threshold returns to $1,000 without this measure. In this final sitting of Parliament of 2024, this concession was removed by amendment from enabling legislation.
Tax and Super Changes
- Foreign resident capital gains withholding changes on the sale of property
From 1 January 2025, the withholding rate will be increased and the threshold will be removed. The withholding increases from 12.5% to 15%. This means the sale of all Australian land and buildings by foreign residents is liable to withholding regardless of the value of the assets. The reforms apply to acquisitions made on or after this date.
- Superannuation rate increases to 12%
The Superannuation Rate will increase from 11.5% to 12% on 1 July 2025 – the final legislated increase.
- Super on Paid Parental Leave
From 1 July 2025, super will be paid on Paid Parental Leave payments.
Interest Rate
The Reserve Bank of Australia reported a reduction in inflation from 5.4% to 2.8% over the year to September 2024. However, it remains challenging to achieve a sustainable 2%-3% inflation. Banks predicts rate cuts in 2025:
- Commbank: February
- ANZ/Westpac: May
- NAB: June
Cost of Living Pressures
The most recent National Accounts show modest growth in living standards, with a slight increase of just 0.2% in the September quarter, and discretionary spending rising by only 0.1%. Although personal income tax cuts and energy subsidies introduced in July 2024 have provided some relief, their full effects are still unfolding.
Rising mortgage costs continue to burden households, contributing to Australia’s slow annual economic growth of 0.8%, the lowest since late 2020. With economic activity largely driven by government spending, 2025 is expected to see gradual progress as cost-of-living pressures persist.
The ‘Trump Effect’: Impact on Australia
With President-elect Trump taking office on January 20, 2025, his trade policies could affect Australia. His plans include a 25% tariff on goods from Mexico and Canada and a 10% tariff on Chinese imports. These actions could lead to a trade war, which might slow down China’s economy, a key factor for Australia’s economic stability.
China is Australia’s largest trading partner, making up 26% of total trade in 2023. A slowdown in China’s economy could impact Australian industries and the region. This uncertainty has already affected the AUD/USD exchange rate, now around 64 cents. Businesses should stay alert to these developments and prepare for potential challenges in global trade.
Fuel Efficient Cars
New CO2 emissions standards for vehicle manufacturers will come into effect from 1 January 2025. These standards set an average CO2 target for all new cars manufactured, and manufacturers have to offer more fuel-efficient, zero or low-emission vehicles. Manufacturers can sell less fuel-efficient vehicles, but these need to be balanced by more efficient models. Companies will earn credit if they are meeting their targets, while those who fail to meet their targets will have two years to generate credits before penalties apply.
Wage Theft Criminalised
From 1 January 2025, intentionally underpaying workers will become a criminal offence. If the employers fail to pay super, wages, or other entitlements under the Fair Work Act, they will have to face fines up to 3 times the underpaid amount and additional fines up to $7.825 million.
Phasing Out Cheques
A timeline to phase out cheques has been set by the Australian Government, with issuance stopping by 30 June 2028 and acceptance that will end by 30 September 2029. Over the past decade, the use of cheques has declined by 90%, and banks are restricting chequebooks for new customers.
- Cash Remains Important
While digital payments are common, 1.5 million Australians still depend on cash for most in-person transactions. Cash is also useful during emergencies like natural disasters or outages. The Government plans to require businesses to accept cash for essential items, with small businesses exempt.